In another hit to economy, Canadian firms cool plans for investment in 2013

On the positive side of the ledger, transportation and warehousing, retail and the finance and insurance sectors all said they expected to hike spending. (file image)

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By Julian Beltrame, The Canadian Press
Published Wednesday, February 27, 2013 10:46AM CST

OTTAWA -- Canada's corporations appear to be taking a wait-and-see approach to capital investments this year, a position that could dampen already modest expectations for economic growth in 2013.

The annual survey of private and public investment intentions by Statistics Canada indicates such spending will rise a mere 1.7 per cent to $398.2 billion this year -- the slowest non-recession pace since 1995 and well down from 7.2 per cent last year.

Private sector spending intentions was even softer at 0.8 per cent, while government investment is expected to rise by five per cent, about the average over the last two decades.

With consumers tapped out, governments restraining overall spending and the housing market cooling, the Bank of Canada has pinned its projection for two per cent growth this year on both a rebound in exports and on business investment.

But the turnaround for exporters has yet to materialize and the Statistics Canada survey suggests that business is generally unwilling to bet on expansion in the current global economic climate.

"Canadian businesses have taken a cautious turn amid an uncertain outlook and weaker commodity prices," said Benjamin Reitzes, an economist with BMO Capital Markets.

"The softness in private sector capital spending intentions doesn't bode well for 2013 growth, especially given hopes the sector would be a key contributor. Surprisingly firm government (capital) spending plans will provide some cushion, but growth drivers are in conspicuously short supply for 2013."

Jimmy Jean of Desjardins Capital Markets says one encouraging signal in the report was that intended purchases of machinery and equipment remain positive, with manufacturers planning to hike spending by 10.4 per cent. This should help boost productivity, a perennial weak spot in Canada's economic performance.

But overall, Jean agreed the report does little to instill confidence that Canada's economy will come roaring back in 2013 after likely recording the first sub two per cent growth rate since the recession last year.

The economic consensus currently projects growth in Canada to average 1.8 per cent in 2013 -- most of that coming in the second half -- but some, such as Capital Economics, believe the number will be as low as one per cent.

In an analysis, David Madani of Capital Economics said the near-term economic outlook is so weak the Bank of Canada will need to consider interest rate cuts.

"Given the tepid global backdrop for exports and the potentially severe housing market correction, we think that financial markets are still underpricing the real possibility that interest rates could fall later this year or early next year," he wrote.

Overall, the agency survey found a broad-based hesitancy to invest this year, with nine of 21 sectors saying they would likely spend less than in 2012.

Education is expecting the biggest decline at 7.7 per cent, but in terms of impact on the economy, the most negative finding was the 2.7 per cent drop in intentions in the mining and oil and gas industries.

On the positive side of the ledger, transportation and warehousing, retail and the finance and insurance sectors all said they expected to hike spending.

Housing, another key sector in terms of its contribution to growth, came in just above zero at 0.2 per cent.